New EVs may face production delays from 2027 as lithium capacity lags

The global market share of electric vehicles is set to rise so quickly that battery manufacturers will not be able to meet the demand for production requirements, according to new data from Rystad Energy.

Lithium - a key mineral in the development of EV batteries - is set to fall short of demand from 2027 onwards unless new mines accelerate. Current estimates predict the price of lithium could triple by the end of the decade.

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Rystad reports current lithium capacity can comfortably satisfy electric vehicle demand, but the rise of green engines, particularly in the wake of coronavirus, will continue to cause strains on the New Electric Vehicle (NEV) supply chain.

This will remain true even as new mining projects add to their capacity in the coming years.

The global semiconductor shortage has also had a severe effect on the adoption of electric vehicle technology, with many companies such as VW having to scale back production for the first half of the year.

Automakers and electronics developers are currently fighting over trickling chip supply from primarily East Asian suppliers. This has prompted a number of key players to switch production to different chips and has caused a number of western leaders to consider further investments in order to deal with the concerns.

The EU has sworn to phase out all Asian chips in the bloc and the UK by 2027. All manufacturers must source their chips from inside the EU or face heavy levies.

The report claims the current lithium mining capacity outlook and the share NEVs will operate in the market seems to point to the supply deficit delaying the production of around 3.3 million electric vehicles - with a battery of 75 kilowatt-hours (kW/h) - in 2027 alone. 

This rate is set to grow steadily to 9 million in 2028 and some 20 million vehicles by 2030.

“A major disruption is brewing for electric vehicle manufacturers. Although there is plenty of lithium to mine in the ground, the existing and planned projects will not be enough to meet the demand for the metal. If more mining projects are not added to the pipeline quickly, the energy transition of road transport may need to slow down,” says James Ley, Senior Vice President at Rystad Energy’s Energy Metals team.

The delays will also extend to other types of vehicles, such as hybrids, trucks and buses, owing to their need to be fully or partially electrified in order to meet emissions goals.

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Even if alternate technologies evolve over the decade, lithium is still likely to be a major component for NEV production, the report adds.

Excluding the lithium mining capacity that supplies non-battery markets such as glass and ceramics, the remaining lithium production capability that can be used for manufacturing batteries of all applications in 2021 is standing at nearly 520,000 tonnes of lithium carbonate equivalent per year.

Demand for lithium carbonate equivalent (LCE) from battery manufacturers is estimated at about 300,000 tonnes this year, but this will grow fast. Rystad claims this will grow to 1 million tonnes by 2025.

LCE prices averaged at around $8,200 per tonne in 2020. The metal’s value saw a massive surge just a few years ago, from $6,500/tonne in 2015 to a record high of $17,000/tonne in 2018, before the market started to calm down in the latter part of the year and into 2019.

Ley added: “We anticipate that lithium prices could replicate their past turbulence if supplies cannot catch up with booming EV demand later this decade. Looking at the significant task ahead to build more mining capacity, prices could even triple as a result of the market imbalance."

As the EV industry matures, it will be necessary to establish and cultivate industries that promote second-life battery use and near 100% recyclability, which has currently been blocked by technical restraints, economic barriers and logistics issues.

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Rystad concludes that recycling lithium will become key to ensuring the sustainability of the sector, owing to the high energy costs - particularly due to the high volumes of water required for mining and the copious amounts of CO2 released during extraction - which may facilitate further actions such as investment into carbon capture technology.

However, recycling is unlikely to be able to plug the gap in lithium supply shortages past 2025, and prices for lithium will "continue to grow" until new mines are developed past the "40 or so" currently proposed.

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